Tax Return Compliance

U.S. Supreme Court Issues Decision for Taxpayers in Maryland - Could Have Impact on Taxpayer's in Other States

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The United States Supreme Court yesterday issued their decision (5-4) in the taxpayer's favor in a case involving whether a State can limit the ability for residents to claim a credit for taxes paid to other states against both the state tax and the county/local portion of the tax.

In Comptroller v Wynne the Court found in favor of Mr. and Mrs. Wynne. Mr. Wynne was a shareholder in an S Corporation that conducted business
in many states and the Wynne's paid income tax to those other states. The Maryland personal income tax includes a state tax and a local/county tax.
Under Maryland law a Maryland resident can claim a credit for taxes paid to other states against the state portion of the Maryland tax but
not against the local/county portion of the tax. The Wynne's took this issue through the Maryland courts saying that the failure to allow
the credit for taxes paid to other states against the country portion of the tax was unconstitutional. Ultimately the Maryland Court of Appeals found
in favor of the Wynne's and the State of Maryland appealed to the United States Supreme Court.

In their decision yesterday, the Court said that not allowing a tax credit against the local/county portion of the tax would cause Maryland residents to
pay a higher tax on income earned out of state than on income earned in Maryland and that this discrepancy would impede interstate commerce.

Impact on Residents of Other StatesThe decision in Comptroller v Wynne could have an impact on taxpayer's and state treasuries outside of Maryland. In Maryland's case, this
decision will result in the loss of hundreds of millions of tax dollars earmarked for local and county governments. This decision also prevents a State
from making its own tax policy decisions. Will this lost revenue be replaced by higher sales or property taxes? Or the loss of the credit for taxes
paid to other states in full? It is too early to say.

Other states and cities such as New York, Indiana, Philadelphia, Cleveland and Detroit have tax systems which do not allow a credit against local taxes.
For example, residents of New York City who pay taxes in other states are only permitted to take a tax credit for those other state taxes against the
New York State personal income tax but not against the New York City personal tax. It should be noted that the New York City personal income tax is
covered and administered under a separate statute from the New York State tax. The tax at issue in Maryland is all administered as a State level income
tax, however, it appears from the Court's decision that this should not matter in allowing a credit for other state's taxes against the local city
tax.

Certainly any residents of Maryland should be filing refund claims if they were unable to fully utilize their credit for taxes paid to other states. It
is likely that other taxing jurisdictions outside of Maryland that have a similar "piggy back" tax system will issue their positions on the Maryland
case in the near future.

Marcum will monitor the impact of yesterday's decision in other states and cities. For example, residents of New York City who paid state taxes on income
earned outside of New York should consider filing protective refund claims to preserve their rights to refunds of New York City taxes should the Supreme
Court's decision be applied to New York State and New York City.

Please contact your Marcum State and Local Tax professional with any questions.

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